Maximizing Operational Efficiency
Are you operating your warehouse, distribution center or manufacturing facility at
maximum efficiency? Most people would answer “no” and are willing to settle for
good, but not great. Efficient operations reduce operating expenses which
translate directly to the bottom line. Yet, many companies are satisfied by
making budget and tend to focus on other core competencies. Efficient
operations improve customer service levels. Yet it is not uncommon for
companies to focus more attention on customer service departments to handle
Why is this? It is because operations are becoming more and more complex. It
can be difficult to isolate the causes for inefficiencies, especially when they may
be linked to several other business factors or constraints. However, by focusing
on a few key operational areas, these complex causes can be isolated, offering
meaningful improvement opportunities; opportunities that translate directly to
the bottom line of the balance sheet. These four areas are Processes, People,
Tools and Systems – and all four are inter-related.
Processes (Engineer approach)
When asked about improving operations, most people will invariably think of
improving processes. Process Engineers have existed for decades and it is true
that to have an efficient operation you must have sound processes. However,
when processes are typically reviewed, companies will invariably defend the
“current state” with excuses and rational reasons.
For example, it is very common in today’s systematized world for a company’s
accounting or warehouse systems to dictate business processes. Unfortunately,
computer programmers aren’t usually that concerned about the result of the
“functionality” they have developed. A few seconds of scan delay here, an extra
keystroke there, and before you know it, you’ve lost 20% productivity. High tech
isn’t always high productivity.
Internal business requirements, either customer or corporate driven also
influence operations. Picking sequences, order batching, labeling, and “value
added services” (e.g. ticketing) can have a big impact on efficiencies.
Best operating practices for most industries have existed for years. Many of
these practices cross over industry lines and can reduce costs significantly. One
approach to improving operating processes is to focus on 3 S’s, Streamline,
Standardize and Simplify. By removing “non-value added” activities,
standardizing procedures and by simplifying methods, improvements are readily
Improving processes is not easy and takes focused attention and experience for
improvements to be realized. It also requires collaboration across departments
and the ability to associate a cost to a benefit, real or in theory. Is your IT
department aware of the cost of system delays and down time? Are merchants
passing value added costs along to “their” customers? Are the costs for last
minute, knee jerk decisions made by others being tracked? Are your operations
and costs at the mercy of Accountants, Programmers and Merchants?
People (HR approach)
Regardless of how efficient you operational processes may be, it still takes
people to get the work done. Labor is the largest variable operating cost for most
companies. It is also the most difficult to manage and optimize. When
evaluating people, we refer to an acronym – STAR, to relate to a “star
performer”. STAR stands for Skill, Technique, Activity and Rate. A star
performer will excel in all 4 of these areas.
Skill – talent or proficiency.
Technique - efficiency and effectiveness of methods.
Activity – time spent staying on task.
Rate – level of effort expended.
By evaluating you work force in these for areas, you can easily determine the
causes for sub-standard performance. You can then provide training to assist
the associate in improving their weaknesses. This shows a commitment on the
management team’s part in their associates’ development.
Motivation is another key area to be considered. Are you providing the proper
motivation to keep your work force energized? People are motivated by different
things. Some are motivated by money, others by recognition. Regardless of the
motivator, the key is to motivate. Employee incentive programs are one way to
offer monetary incentives as a means to improve productivity and operational
Tools (Management approach)
In professional sports, teams spend millions of dollars to provide their athletes
with the best equipment available to perform at the highest levels. Are you
providing your team with the best tools? Are they always available? You don’t
see baseball players coming to the plate without a bat. However, I’ve witnessed
countless times associates in warehouses going to their workstation without
pens, box cutters, tape, RF guns, labels, etc. You get the point.
Sometimes it’s not about having the best tools, just tools that are accessible and
within easy reach. You’ll notice that your best performers are usually the most
organized and in many instances they will have created their own work pouch or
modified their work station to make their job easier. Easier usually translates into
more efficient. Learn from these associates. Better still, ask them what they
need – and give it to them! Share it with the rest of the players on the team.
Systems (IT approach)
As mentioned previously, systems are becoming more and more complex every
day. Adding “functionality” can add inefficiencies – more steps to be followed for
every order processed. An additional 2 seconds over 1,000,000 transactions will
add over 550 hours or $10,000 to a process. Sure, it’s great to be able to track
and analyze operational data, just be aware of the cost.
System down time is easily measured and causes large increases in labor costs.
Batch processing (usually performed during “off hours”), limits a 3rd shift
operation. It also effects order cut-off times, requiring them to be earlier in the
System transaction delays are a sneaky, yet underestimated cause of
operational inefficiency. They are usually intermittent which makes them hard to
track. However, using the previous 2 second delay over 1,000,000 transactions
example, the cost can be significant.
Most systems providers will site a significant ROI when using their systems.
However, most of those cost savings are from reduced clerical functions. If they
claim efficiencies from core operations, review them carefully because they may
not realized in practice. You’ll be asking were the savings have gone.
By focusing on these four areas, Processes, People, Tools and Systems,
becoming more operationally efficient is possible. The largest gains are realized
when all four components are optimized simultaneously in a collaborative
environment. This is not easy and requires commitment and leadership to
achieve. However, it can and is being done by companies, large, medium and
small. It all begins with asking the right questions and not limiting yourself to one